Control Account Manager (CAM) Archives

Retaining EVMS Talent

By Humphreys & Associates / July 1, 2024 / CAM, earned value consultants, earned value training, EVMS

CAM, earned value consultants, earned value training, EVMS

RETAINING EVMS TALENT
Earned Value Consultants
HUMPHREYS & ASSOCIATES

A long running challenge all companies face is attracting and retaining top project management talent in government contracting environments whether for the DoD, shipbuilding, NASA, DOE, or the intelligence community. Experienced program/project managers, control account managers (CAMs), schedulers, and project control analysts are always in short supply. It is expensive to continually hire and train new employees that elect to move on for a variety of reasons; successful strategies aimed at reducing turnover always help the financial bottom line.

An informal survey H&A earned value consultants recently conducted with corporate business managers and Earned Value Management System (EVMS) directors of A&D and DOE contractors highlighted this challenge of retaining top talent. One contractor surveyed had a 50% annual turnover rate in CAMs that was impacting their ability to sustain their EVMS best practices. The reasons the CAMs gave the business managers or EVMS directors for moving on are summarized in the following pie chart.

Reasons the CAMs gave for moving on: Left the Company - 17%, Retirement - 15%, Required too much overtime- 14%, No incentive or recognition - 14%, Promotion - 12%, Only want to do technical work - 11%, Not compensated to be a CAM - 9%, Transfer/ new job - 5%, Death - 3%

While some items are outside the control of a manager or director such as retirement and potentially leaving the company (which may have an underlying root cause related to other reasons cited), a good percentage could be addressed with a formal training and retention program. For example, adding up required too much overtime (14%), no incentive or recognition (14%), only want to do technical work (11%), and not compensated to be a CAM (9%) adds up to 48% of the reasons why they moved on.

Establishing a Training and Retention Program

A strategy some companies have implemented to address this retention challenge is to establish a career path for talented technical, estimating, scheduling, and cost management project personnel with a formal training and retention program that aligns with their professional objectives. A successful approach for retaining and promoting motivated project personnel H&A earned value consultants have seen implemented at some A&D contractors included the following tactics.

Management established a formal training and promotion program for potential CAMs that new employees learn about as part of their on-boarding process. The program is meant to be an incentive for potential employees to come work for the company. These new employees are introduced to their options and the training/promotion process to help them chart their career goals and set expectations. The message to new employees is that the company is committed to helping them determine and achieve their professional goals.
The companies hired a blend of technical engineering, cost estimating, scheduling, and cost management project personnel with the anticipation they would move up through the role of a CAM with expanding responsibilities and higher management levels. This was clearly communicated to the new employees as part of the process to chart their career goals within the company.
They assigned a mentor to help guide them through the training and promotion program. This provided two benefits to the company: a) management was able to quickly identify talented and motivated employees and 2) employees had a direct connection to leadership that could help them align their talents with career paths within the company. It also helps the company to identify those employees that want to excel within their chosen discipline such as systems engineering or scheduling; not everyone will want to follow the path to become a CAM.
They cross trained the personnel in the different disciplines required for a best in class EVMS to increase their skill levels and knowledge base required for an integrated system. This was required training for new employees. For example, the cost estimators or cost management personnel learned about scheduling techniques and the schedulers learned about cost management techniques. Technical personnel learned about schedule and cost techniques. EVM concepts and best practices as well as schedule and cost performance analysis were part of the standard curriculum for everyone.
For those employees that wanted to continue moving up through the CAM role to higher management levels, advanced training was required. Training in other disciplines were woven in such as risk management, resource management, material management, subcontract management, financial analysis, and advanced project performance analysis to broaden their knowledge base. These employees were tested, certified, and earned a bonus upon gaining their certifications that ranged from $5K to $10K.
Typical certifications included the Project Management Institute (PMI) Project Management Professional (PMP) as a foundation. The Association for the Advancement of Cost Engineering (AACE) International offers targeted certifications such as their Certified Cost Professional (CCP), Certified Estimating Professional (CEP), and Earned Value Professional (EVP). More advanced course work often included the H&A Advanced Earned Value Management Techniques (AEVMT) workshop, CAM Certification workshop, or the Project Controls/Analyst (PC/A) Certification workshop.
The employee’s mentor helped them to chart a path starting with smaller projects in a planning and scheduling role and then advancing them through different project types and project control roles to larger more complex projects so they could gain hands-on experience in each environment. This approach helped them to broaden their knowledge base across disciplines, improve their skill sets, and learn how to successfully handle increasingly complex project control challenges as well as develop an internal professional network. There were various paths they could follow to progressively gain more experience. The end goal was to become a CAM on a large complex project in preparation for becoming a project manager. This is illustrated in the following image.

Possible paths for a project planner to become a CAM.

Successful CAMs that completed this advancement plan were then moved up to higher management roles such as project managers, business managers, and corporate EVMS directors. For example, one company established a program like this and seven years later, the majority of project managers, business managers, and corporate directors came through this program. The company also offered bonuses for successfully achieving major project milestones or other events such as Integrated Baseline Reviews (IBRs) to keep them focused.
Senior CAMs, project managers, business managers, and corporate directors were the instructors for internal project management and EVM training as well as mentors. This demonstrated to project personnel that excellence in integrated program management was a fundamental component of the company’s business culture.

Essential Components

Common attributes of successful training and retention programs included:

Establishing a program with a defined training and career path to guide and mentor motivated employees whether beginning from a technical, schedule, or cost discipline up through the role of CAMs. The path to become a project manager or high level manager starts with the role of CAM.
Project managers, executive managers and directors conduct the internal project management and EVM training. They are the mentors to junior personnel. They establish the corporate business culture that highlights excellence in project management is a priority. Exceptional project execution results in better financial performance. A commitment to excellence creates a better working environment that reduces the stress level for CAMs and project managers because there is a proven process in place to help ensure achievable project goals have been established.
Motivated employees are rewarded for improving and broadening their skill sets, experience, and knowledge base. They are recognized for their high level of proficiency as well as their role in establishing and maintaining a best in class EVMS regardless of the project they are supporting. Recognition can take many forms that can be tailored to what is important to an employee, whether as bonuses, awards, additional training, or promotions.

Retaining top project management talent requires a plan and strategy corporate management is invested in and actively maintains. It is an inherent component of the corporate culture that demonstrates a commitment to excellence in project management and sustaining a best in class EVMS.

H&A earned value consultants often help corporate business managers and EVM directors chart out training plans for cross-training project personnel and helping them establish internal CAM or project controls certification programs. Licensing H&A training materials or Virtual Learning Lab (VLL) scheduling and EVM online training reduces the time required to develop and maintain training materials. We can do the same for you. Give us a call today at (714) 685-1730.

Retaining EVMS Talent Read Post »

Planning and Managing EVM by Elements of Cost (EOC) – Use a New EOC – Part 3

By Humphreys & Associates / May 1, 2019 / ACWP, BCWP, CAM, earned value training, Elements of Cost, EOC, EVM Training

ACWP, BCWP, CAM, earned value training, Elements of Cost, EOC, EVM Training

<< Review Part 2

In Part 2 we talked about the over-application of EOCs at or below the Work Package level and how a CAR assuming that a charge against an Element Of Cost (EOC) equals a charge against a “zero-budgeted WP” was inaccurate.

Use a New EOC

Both of the examples from part 2 were over-applications of the EOC requirement. The point here was that the work (it was to design a circuit card), was planned as labor and was also accomplished (earned) in the month it was planned; so the value would be “earned” as planned. In that period, however, it happened that the planned resource was not available, so the work was actually accomplished using a different EOC such as a subcontractor engineer. The contractor’s system properly showed that the design had been completed and the value earned and that the ACWP for that completion was also in the system (i.e. consistent with the BCWP). However, it just happened to be the Subcontract EOC instead of the Labor EOC originally planned, and the CAM addressed the cost difference in the VAR for the Control Account. The team’s comments on the CARs were that the CAM should have replanned the effort using the new EOC instead of the original one. The problem with this is that in many cases the CAM does not know the original resource is not going to be available until the day it happens. There would (1) be no time to process the change and (2) the change would occur in the “freeze period” (actually in the current month), and (3) this could result in unnecessarily large numbers of Change Requests since these types of events commonly occur in the industry.

Noted instances:

Work planned and earned as internal labor (Labor EOC) had to be performed by contract support (subcontract EOC) in that period because of the non-availability of the planned resource.
[Some Contractors consider each labor grade a separate EOC within labor] Work planned and earned for an Engineer 2. However, the period the work was performed used an Engineer 3 (higher cost).
The plan was to build sub-assemblies in-house (Labor EOC), but a machine breakdown necessitated having a vendor provide substitute off-the-shelf assemblies (Material EOC) that month.

In each of these cases, the “EOC ACWP substitution” was temporary, and the work resumed the next period as planned, using the originally planned Element of Cost. The key here is that in each case, the work was performed, and so it was earned; as it should have been. The only difference was that a different EOC was used to accomplish the work – a simple Cost Variance. While it is certainly true that each WP (and PP) should be planned and WPs earned using a single EOC, the misinterpretation here was that every EOC then is a Work package and they are not. In other words, temporarily using a different Engineer category than planned, or using contract support instead of internal labor, or substituting a purchased material item instead of fabricating internally, etc. simply represents a Cost Variances, and should not be cited as a violation of the EVMS Guidelines.

The “consistency” required by the Guideline and the sub-question is that the EOC actually used was expended in the same period in which the work was completed and the Earned Value claimed (i.e. consistent with the BCWP). The variance analysis would show BCWS, BCWP, and ACWP at the CA level with the EOC details at lower levels.

Now for the big “HOWEVER”!

If the switch in use of the alternate EOC is short term, then the differences should be addressed as a Cost Variance (which could be higher or lower than with the planned EOC); HOWEVER, if the change is expected to be permanent or long term, then the CAM should replan the remainder of the work package using the new EOC, and the EAC should be updated, as well, to reflect the new anticipated total cost using that revised EOC.

Note: Some contractors have what is called a “gray badge” environment, whereby a subcontractor charges their labor directly into the Prime contractor’s labor system. Under this arrangement, for this subcontractor, there would be no difference in EOC if the subcontractor performed the work instead of the prime contractor.

Humphreys & Associates is available for consulting and information on this topic. Give us a call!

Planning and Managing EVM by Elements of Cost (EOC) – Use a New EOC – Part 3 Read Post »

Planning and Managing EVM by Elements of Cost (EOC) Example: Building a Backyard Patio – Part 1

By Humphreys & Associates / March 1, 2019 / Control Account, earned value management, earned value training, Elements of Cost, EVM, EVM Training, Planning Package, Work Package

Control Account, earned value management, earned value training, Elements of Cost, EVM, EVM Training, Planning Package, Work Package

What are “Elements of Cost”?

Labor, Materials, Subcontracts, Other Direct Costs, and their Indirect Costs (Overhead including General and Administrative —G&A) are the typical building blocks for any project: personal projects and projects we manage for the customers we support. These items are also what the Earned Value Management System (EVMS) Guidelines call elements of cost (or EOCs). So, when the Guidelines call for us to plan and manage by EOC, it really should not cause us any undue anxiety – it is just the natural way to manage any project.

Example: Outdoor Backyard Patio

Let’s use a simple home project example of building an outdoor backyard patio: What do you have to do to determine how much it will cost for this Backyard Patio Project (BPP if you like acronyms)? Generally, you look at such things as:

How much concrete; lumber for decking; nails, screws, bolts, washers, and other hardware, etc.; and weather-coating and paints/stains you will need (Material Element of Cost – EOC).
Work you cannot do by yourself: electricity for lights and power, and natural gas for the Barbecue/fireplace (Subcontract EOC).
Work you will do yourself (Labor EOC).
Costs unique to this project’s completion, such as: Home Owners Association permits, building code permits, local excavation application fee, etc. (Other Direct Cost EOC).
Costs incurred that do not necessarily go into the final product, such as: cleaning supplies, brooms, solvents, turpentine, weather tarpaulins, lighting and electricity, etc. (Indirect Costs/Overheads).

Unfortunately, when operating under the EVM requirement, often managers tend to overthink, and sometimes over apply the management of EOCs. Let’s look at the overthinking part first.

Overthinking EOCs

Guideline 9 of the EIA Standard 748 (Revision D) for EVM Systems requires:

Establish budgets for authorized work with identification of significant cost elements (labor, material, etc.) as needed for internal management and for control of subcontractors.

Some might propose: “I’ll have one Work Package for the Control Account with all the EOCs in it, and I’ll be okay.” That might meet the intent of that first part of the guideline, but would probably fail the requirement that says “as needed for internal management and control of subcontractors.” For example, what EV technique would you use for a “work package” that had labor, material, and subcontract work in it? The labor occurs as the work is performed, the material might be earned at the point of receipt on the dock, and the subcontract might earn value with the receipt of an Integrated Program Management Data and Analysis Report (IPMDAR) dataset at the end of a month. Since the Control Account (CA) has one total dollar budget, the “identification of significant cost elements” has to occur at the Work Package (WP) and Planning Package (PP) level within the CA, which requires each WP and PP to be identified as one of the EOCs mentioned above.

For Instance

In our example, if we lumped concrete and lumber into one “Material WP” and we incurred a serious overrun in material, how would we identify what caused the overrun: the concrete pour or the lumber portion? These are different categories of material that would “earn value” (be accomplished) in different ways and at different times. In order to determine the “guilty party” in the overrun, we should also have separate WPs for the different significant material categories. Some might call these major, or high value, or critical material items, which should be tracked separately.

On the other hand, for the lower-value materials, it may not be significant enough to management to know that a variance might have been caused by a 1-cent washer or a pint of deck stain. Consequently, a grouping of these low-value material items may be all that is required for visibility. Conversely, Management might actually want to break out categories such as, separating the paints/stains, and weather-coating from the nuts, bolts, washers and other hardware, since they are different categories of low-value material that could also earn value differently.

Indirect Cost Rates Must be Applied Properly

For Indirect Costs, some contractors put the burden of planning and managing these overhead costs on the CAMs, while others apply the indirect rates at a summary level of the Work Breakdown Structure (WBS) or organizational structure. Regardless of how a particular contractor does it, the indirect cost rates must be applied properly to the various direct elements of cost:

Material handling charges applied to material items
Indirect Labor rates applied to the direct labor hours
Subcontract overhead applied to the subcontract direct costs
ODC overheads charged to the ODCs identified.

Applying and managing overheads at the CA level would entail hundreds of applications across the number of Control Accounts on a project, but applying these at a summary level would require only a handful of Overhead lines in reports. Doing so would significantly reduce the number of possible errors in application – which is why many contractors do not require CAMs to “manage” overheads in their Control Accounts. [Our BPP example does not have the above types of Indirect Costs that are related to specific Direct Costs, but it does have its own specific Overheads related to the labor to build the Patio.]

Humphreys & Associates is available for earned value training and consulting. Give us a call!

Planning and Managing EVM by Elements of Cost (EOC) Example: Building a Backyard Patio – Part 1 Read Post »

Roles/Responsibilities and Incentives Used to Find the Right CAM

By Humphreys & Associates / November 1, 2018 / CAM, Control Account Managers, Finding CAMs, Promote from Within

CAM, Control Account Managers, Finding CAMs, Promote from Within

A Question of Incentive

A question commonly asked in the industry is “how companies are incentivizing their employees to become Control Account Managers (CAMs)”. Before answering this question, it is important to fully understand what the CAM’s roles and responsibilities are. In addition, it is important to understand the what authority and accountability a CAM has within his/her organization.

CAM Responsibilities

The CAM is the single point of contact for management of the Control Account. Consequently, the CAM is responsible for managing the cost, schedule and technical performance of the Control Account. Below is a list of specific CAM responsibilities that are common throughout the industry:

Establish and maintain Control Account budgets and schedules.
Define the tasks and the sequencing of the schedule for optimizing the accomplishment of the work scope.
Assure the scheduled activities for the Control Account have a realistic duration and performance logic.
Maintain the appropriate portions of the WBS Dictionary and approve the Control Account Authorization (CAA) and authorized changes to the CAA.
Proactively manage the personnel performing the Control Account detailed scope of work.
Identify, negotiate and implement required vertical and horizontal interfaces.
Manage Customer Expectation Agreements (CEA) and Memorandums of Understanding (MOU) with other organizations and programs.
Review and approve all resources and cost type charging to the Control Account and assure its accuracy.
Monitor and assess preponderance of Control Account and Work Directive.
Prepare Control Account Variance Analysis Reports that clearly address cause, impact and corrective action.
Develop, implement and manage corrective actions, as applicable.
Maintain an awareness of the Subcontract Data Requirement List (SDRL) items and other applicable contract deliverables.
Prepare Estimates to Completion for remaining Control Account work scope.
Provide forecast dates for accomplishing activities and milestones in the Control Account Schedule.
Evaluate applicable Critical Path tasks within the Control Account.
Manage the integration and monitor the development of any critical technologies.
Inform management of significant problems concerning Control Account performance.
Identify potential technical and programmatic risks and make effective use of the risk management tool.
Employ the baseline change control process for any revisions to the Control Account’s baseline scope, schedule and budget. Submit Budget Change Notices (BCN) as necessary.
Proactively manage all subcontractor effort that affects Control Account performance.
Lead or participate in Make/Buy decisions.
Evaluate alternatives and develop facility utilization plans as applicable.
Status all work scheduled within the Control Account.
Participate in applicable IPT meetings to assure technical integration.
Update the CAM Notebook to maintain currency and accuracy.

Review and Approve

In addition, the CAM has the authority to review and approve all work assignments, documents and commitments involving his/her Control Account. This results in the CAM being held fully accountable to the Program Manager for overall Control Account performance. Below are some specific items a CAM would have authority over. In addition, a list of accountable actions is provided.

Approve the Control Account Authorization documents.
Co-approve the Make/Buy Plan for any material used in the performance of the Control Account scope of work.
Approve Control Account Budget Change Notices and Requests.
Authorize and coordinate work performed by functional departments on Work Directives within the Control Account.
Determine the work schedule and prioritize work within each Work Directives issued for the Control Account.
Approve hours charged to the Work Directives supporting the Control Account.
Approve material and other direct costs charged to the Work Directives supporting the Control Account.
Identify potential technical, schedule and cost risks and enter them into the Risk Management Process.

Accountable actions by the CAM

Complete the Control Account scope of work within the schedule period authorized.
Complete the Control Account scope of work within the resources authorized.
Achieve the technical performance goals for the defined scope of work.
Achieve the technical quality.
Assure that the reported Earned Value performance is based on quantified back-up data including justification of variances, identified impacts and corrective action plans.
Mitigate all technical, schedule and cost risks associated with the Control Account.

Encouraging CAMs

Appropriate incentives for high performing individuals to become CAMs is a common question across the industry. Many believe they were hired to do the technical aspects of the job and do not want the responsibility of cost and schedule. You hear comments like “this is not what I went to school to learn.” Below are a few suggested avenues an organization can follow to better highlight the importance of the CAM’s role;

Companies will reward individuals with a ~$5k bonus for passing all the requirements in becoming a CAM. In many cases, this encourages individuals to better understand the cost and schedule aspects of the job in order to become an effective and successful CAM. They will be required to take an instructor led class of 3 days for basics of Scheduling, 3-day basics of EVMS, then 3-day Advanced course where both cost and schedule are covered. Then and only then can a title can change from Control Account Leader (CAL) to Control Account Manager (CAM).
Increased Upper Management support and emphasis on the CAM’s role motivates individuals in becoming a CAM. In one example company, the Vice President of Programs required potential CAMs to prepare a presentation proving what they had learned during the CAM Certification/Training process. Having upper management buy-in on the importance of the CAM’s role is crucial.
Organizations will use the CAM position as a stepping stone/pre-requisite toward becoming a Program Manager (PM). This can be an effective technique.
Assurance that the CAMs will have the appropriate Cost and Schedule support staff assisting them as required. CAMs cannot be expected to be the expert in the Technical, Cost and Schedule disciplines on their own. Qualified Cost/Schedule support is essential to properly managing the CAM’s role.

Room for Growth

Any or combination of the above examples can increase the desire of individuals into becoming CAMs. Management positions are not for everyone. Often individuals who are otherwise highly proficient in their existing positions fail as managers. The CAM role is no different. It important for organizations to fully define the roles and responsibilities of the CAM as well as the incentives and goals used. By doing so, organizations will be better equipped in placing the right individuals into CAM positions for success.

Roles/Responsibilities and Incentives Used to Find the Right CAM Read Post »

EVM: Is DCMA A Contractor’s “Friend or Foe?”

By Robert “Too Tall” Kenney / August 15, 2018 / CAP, CAR, DCMA, Defense Contract Management Agency, EAC, EVM, EVM Consulting, EVMS

CAP, CAR, DCMA, Defense Contract Management Agency, EAC, EVM, EVM Consulting, EVMS

Is DCMA A Contractor’s “Friend or Foe?”

I’ll answer this provocative question now. DCMA, local and headquarters, are an EVM contractor’s “friend” with remarkable, but not unlimited, patience. When required, DCMA can become the contractor’s “tough love” friend.

DCMA and the contractor share the same interests – successful contract performance. DCMA is part of a triad that includes the Government’s program team, the contractor’s program team and their DCMA counterparts.

The title “Defense Contract Management Agency” reminds me of “grilled cheese sandwich” – the recipe and the product are in the name – “contract management” leads to well managed contracts.

EAC Vignette – Part One:

Contractor A has learned that their collocated DCMA has concerns about the company’s EAC process and resulting declared EACs. The company has learned that a Level III CAR on GL # 27 is being considered. Contractor A’s senior management decides to replace their EVM Core Leader with “new blood” to improve the company’s “relationship” with DCMA and avoid a Level III CAR.

Contractor A’s new EVM leader meets with her team and with the program managers that have an EVM contractual requirement. Company A’s new EVM leader is told that DCMA’s EAC concerns are a new issue. The company’s new EVM leader asks to meet with her DCMA counterpart to discuss their GL # 27 concerns, and to present a draft of a Corrective Action Plan (CAP).

During the meeting with DCMA’s EVM leader she mentions that the EAC concerns were a surprise to the company. The company’s new EVM leader briefs her draft CAP to her DCMA counterpart.

After the draft CAP has been briefed, the DCMA EVM leader comments, “your draft CAP is a good start. After I have time to fully digest your draft CAP I will send my comments and suggestions. As for being surprised by our EAC concerns, here is a file with 3+ years of letters, emails, meeting minutes from DCMA to your company outlining our continuing and growing concerns with your company’s EAC process.”

EAC Vignette – Part Two:

DCMA issued a Level III Corrective Action Request (CAR) to the contractor and is considering withholdings as an incentive for the company to quickly improve their EAC processes.

As promised, the DCMA EVM leader sent the following note to the company’s new EVM leader:

“I sent your draft GL # 27 CAP to my team for their comments and recommendations. My team’s key recommendations are:

1). Identify the weaknesses in your existing EAC processes. For each weakness, identify a corrective action. As much as possible, “mistake proof” your new processes. You should consider a review of several 100% complete contracts, and “replay” those contracts month-by-month using your new EAC processes to test their effectiveness.

2). As noted in our CAR, the company is required to report progress on the Corrective Action Plan (CAP). You should treat your CAP as a program. At a minimum, you should have an IMS and use appropriate earned value techniques to measure progress.

3). A sister division in your parent corporation, has a very mature and effective EAC process. You should considering asking for their assistance as you develop your CAP and begin its execution.

4). If you have questions as you execute your CAP, please don’t hesitate to contact me. If I don’t know the answer to your question, I’ll find someone that does know the answer and will share it with you.”

Personal Observations:

Based on my 32 years as an employee of defense contractors, and 7 years in earned value consulting, I offer the following:

1). DCMA “local” knows your company much better than you might think.

2). DCMA “headquarters” has knowledge and insight into many companies. From DCMA’s website: “We are the independent eyes and ears of DoD and its partners, delivering actionable acquisition insight from the factory floor to the front line …. around the world.”

3). A CAR from DCMA informs the company of “what” needs corrected but not “how” to correct the issue. That said, DCMA knows what will or will not work. Maintain a dialogue with DCMA.

4). “Compliance” is a lower bound for performance. DCMA will not object if a company decides to improve well beyond mere compliance.

5). Please consider the possibility that what may appear to be a “new” problem for your company, may have already been solved by another company. Find who has already solved your “new” problem. Ask for help.

DCMA will never be a foe. Never.

EVM: Is DCMA A Contractor’s “Friend or Foe?” Read Post »

Program Manager / Project Manager Use of Management Reserve

By Humphreys & Associates / April 3, 2018 / Earned Value Management System Description (EVMSD), EVM Consultant, Management Reserve, Management Reserve (MR), Management Reserve Log (MRL), Performance Measurement Baseline (PMB), Program Manager, Project Manager

Earned Value Management System Description (EVMSD), EVM Consultant, Management Reserve, Management Reserve (MR), Management Reserve Log (MRL), Performance Measurement Baseline (PMB), Program Manager, Project Manager

What is Management Reserve?

Management Reserve (MR) is developed and managed by the Program Manager / Project Manager. This discussion will provide guidance for establishing and using Management Reserve to effectively manage a project.

H&A description– The standard definition of management reserve is an amount of contract budget set aside for management control purposes (known unknowns) rather than designated for the accomplishment of one or more tasks. It is not part of the performance measurement baseline (PMB) but is included in the contract budget base.

DOE guidance – The ability to establish MR allows project management to react to unforeseen in‐scope situations that arise during the life of a project. It is budget for handling project risk and in‐scope unanticipated events. Management Reserve is not a source of funding for additional work scope or for the elimination of performance variances. It is an amount of the project budget set aside for management control purposes by the contractor. Management Reserve is the contractor’s budget and provides the project manager with a budget for unplanned activities within the current project scope. Because MR is budget that is not yet associated to work scope, it is not part of the PMB.

The Earned Value Management System Description (EVMSD)

The contractor must include a clear definition of MR in the EVM SD. For clarity and consistency, the EVM SD must describe the process and list allowable conditions under which it may be approved and allocated to the control accounts managers. Management Reserve cannot be used to offset accumulated overruns or under runs. Authorized uses of it include:

Previously unrecognized tasks or realized risks consistent with the general scope of work of the contract.
Change in execution strategy (e.g., make/buy decisions).
Unexpected future internal scope growth within the currently authorized scope of the project.
Direct and indirect rate changes and currency fluctuations.
Risk and opportunity handling (not for cost or schedule variance based risks).
Work that needs to be repeated (not the result of inaccurately reported progress).
Changes to the future budget of work not yet started (e.g., subcontractor activities that are negotiated post project award).

Baseline Planning

The first step in the process the PM must accomplish is establishing the Management Reserve at the initiation of the Performance Measurement Baseline development. The project manager has authority and control of the development and use of the MR budget.

The process steps are:

Reconciling the proposal estimates with the contract award.
The project manager will establish an MR budget based on examination of the contractual scope of work. Factors affecting the MR budget establishment are high technical risk areas, complex schedule problems, or an anticipated shortage in a critical resource area such as labor, material, or support services.
Once anticipated problem areas are isolated, Negotiations between the Project Manager and the Control Account Managerscan begin to determine the Control Account Budgets. This is an iterative process during which the PM will negotiate with the CAMs:
- The budget amount to be withheld from each Control Account(based on the results from step 2 above).
  Evaluating the scope of work, risk associated with the scope of work, maturity of the concepts/ designs/ manufacturing included in the scope of work and the CAMs past performance on similar projects.
- The PM can target a specific percent of the awarded budget based on the complexity, risk and duration of the contract and the scope in each control account
The PM will negotiate and issue budgets to the CAMs and the balance remaining from the authorized budgets and the Contract Budget Base establishes the Management Reserve. Typically, this amount should be 10-15 % of the CBB value.

The next step for the PM is to track the MR budget. This is done by creating a Management Reserve Log. This can be a separate log or part of the Contract Budget Base log.

Record the original amount of MR after the control account budgets have been authorized to the CAMs.
Record changes to MR as additional budgets are authorized to increase or decrease control account values. (Management reserve is decreased to provide budget for unplanned tasks within the contract scope of work or increased whenever work is decreased along with the allocated budget.)
Use the logs to report MR activity in the monthly reports to the customer.

Project Execution

During the actual execution of the project the PM may experience various scenarios that will require the use of Management Reserve. The process to identify, evaluate and authorize MR transactions should include the following steps:

Either the CAMs or the PM can identify new tasks or realized risks to be performed or deleted in the Control Account efforts.
The affected areas in the control accounts will be identified and the impacts quantified (resources/ time …..) for the scope being modified. Tasks identified to be outside of the Control Account scope (but within the overall Project Contract scope) will be authorized and budgeted from the Management Reserve. Reductions to the Control Account scope will be authorized and the appropriate budget and scope returned to the Undistributed Budget, where the SOW is deleted and the associated budget credited to the Management Reserve.
Management Reserve transactions cannot be made without identified scope being added/reduced from the Control Account and the associated budget recorded in the MR Log and updated Work Authorization documentation issued to the Control Account Managers.
Changes in the MR log will be identified and described in the monthly customer reports. If the transaction was for an identified Risk, the Risk Registerwill also be updated and reported to the customer.
Use the Change Control process to document the rationale for all baseline budget and schedule revisions.

Acceptable Uses of Management Reserve (Examples)

Authorize additional budget/ scope for previously unrecognized tasks and identified risks that are consistent within the scope of work of the contract.
Authorize changes in execution strategy such as a make/buy modification.
May be used to offset changes in direct/ indirect rates and currency fluctuations.
May be used for Risk/ Opportunity handling (does not include Cost or Schedule Variance based risks).
May be used for work that needs to be repeated.
May be used to adjust budgets for final negotiations with subcontractors.

Unacceptable Uses of Management Reserve

Cannot be used to cover overruns.
No changes to open Work Packages without customer approval.
MR cannot be a negative value.

Project Manager Authority/ Responsibility

Management Reserve belongs to the Project Manager.
The PM is responsible for controlling MR transactions.
The PM may or may not allocate MR based on the assessment of the CAMs requests and availability of MR balance.
The PM is responsible to ensure that all MR transactions are documented, reported, and traceable.

Summary

Management Reserve is a critical part of the PM’s toolkit. It allows the PM some flexibility in planning for Risks and Opportunities, and for required changes that are in scope to the contract but were not identified in the original baseline planning. The company’s EVM SD is the primary guide the PM should use in determining which MR requests are allowable and those that are not valid.

Some Data contained in this paper came from Humphreys & Associates and from DOE EVMS websites.

Program Manager / Project Manager Use of Management Reserve Read Post »